US growth rate, EU inflation and Fed rate decision highlight the week

Against a backdrop of a 75-basis-point (bp) rate hike on Wednesday, and a 9% chance of a 100-basis-point hike, the US Federal Reserve is going to conclude a two-day meeting on the following Wednesday.

It will be interesting to see how the market reacts to how hawkish Jerome Powell sounds with his determination to reduce inflation in the face of slowing growth.

Traders are pulling back on tightening expectations, fearful of a wobbly economy that can withstand too many rate hikes. However, investors aren't yet willing to take the dollar too far from milestone highs, given the global outlook.

On Monday, the dollar index held steady at 106.650, just below a two-decade high reached in mid-July at 109.290. Analysts don't see many hurdles for the dollar in the near future.

According to Fed Funds' future prices, there is still a 20% chance that a 100 basis point hike will happen, but reports indicate that the Fed won't go that far.

As the market attempts to size the possibility of a recession and the Fed's commitment to taming inflation in the event of a recession, the FOMC statement and Fed Chair Powell's press conference will be more critical to the market. 

As data showed on Friday, US business activity contracted for the first time in nearly two years this month, eurozone activity retreated for the first time in over a year, and British growth was at a 17-month low.

Oil falls on demand worries

In recent months, oil prices have been under pressure because of concern that aggressive rate rises by the US Federal Reserve will sluggish the global economy and reduce demand for fuel. Due to this, oil prices fell on Monday, extending a recent decline. 

Events of the week

Towards the end of the week, we'll get a slew of CPI and GDP numbers. This will largely be backwards-looking, but it may still hint at what's to come for the economy and central banks.

The US GDP is expected to grow positively, preventing two consecutive quarters of negative real GDP growth, which constitute a recession. The US Core PCE prices are expected to grow 0.5% month over month, compared to 0.3% last month.

A flash reading of 8.7% is expected for the Eurozone CPI for July, while a reading of 4.7% is expected for the Eurozone core CPI, excluding energy and food. The quarterly GDP growth rate is predicted to be 0.6%.

The US, Europe, and investors will be watching to see if economies can tackle inflation without overly crimping the economy during a summer of hot demand and hot prices.